May 24, 2019
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China growth beats expectations thanks to humming factories

By James T. Areddy

Shanghai, China, Apr 17 (efe-epa).- China's economic growth held to a 6.4% growth rate in the first three months of the year as factory production picked up significantly amid signs authorities worked forcefully to stabilize output following months of weakness, according to a Dow Jones report supplied to EFE on Wednesday.

The 6.4% expansion in China's economy during the first quarter remained below 2018's 6.6% full-year rate, according to official data released Wednesday. The pace was slightly higher than what many economists expected and appeared buoyed by a powerful rebound in some key drivers. Industrial production, after an anemic start to the year, surged 8.5% in March from a year earlier. Retail sales for the quarter were stronger than expected.

While China's economy has been on a slow downtrend this past decade--weighed down by debt and excess capacity--the government has worked to arrest the slide, especially after a sharper-than-expected slowdown last year. Many economists believe China's first-quarter performance will be the year's weakest as consumer and services sectors continue to perform better than investment in fixed assets, like factories and bridges.

Beijing took tentative steps in recent months to address cash crunches at many businesses with new and targeted stimulus including tax cuts and red-tape curbs. It also gave a nod to local governments to spend on infrastructure, a partial unwinding of the central government's credit squeeze that began two years ago in an effort to arrest the buildup of debt. Money supply also picked up visibly in March, a sign of credit easing.

Trade tensions between the U.S. and China that put off some investors last year are also abating. Months of trans-Pacific negotiations to freeze or reverse some or all the punitive tariffs on hundreds of billions of dollars of goods the countries trade are appearing to make progress.

Bets that a deal is within reach are helping lift business confidence and underpin markets in China: the Shanghai Composite Index has gained more than 5% in April after posting a 24% gain in the first three months of 2019, its best quarter in five years. That reflects, in part, how Beijing--eager to attract cash--is allowing foreigners to invest in new ways.

Wednesday's better-than-expected readings are likely to raise further questions about government data. Many past drivers of the economy still aren't firing. Passenger auto sales fell last year for the first time since 1990 and continued to tumble in the first quarter, an indication of trouble for both manufacturers and consumers. Investment in factories, roads and other fixed assets grew 6.3% in the first three months of the year, only a slight upturn from a 6.1% rise in January and February. Goldman Sachs Group Inc. analysts say the all-important real-estate industry is currently a neutral factor for the economy, as developers build less and homeowners nibble on existing supplies.

Consumer prices are also rising due to a virus that is spreading through the nation's pig population, devastating the supply of pork, which is a staple. Pork production was off 5.2% in the quarter. The upward price pressure and risk of higher inflation, according to the International Monetary Fund, mean Beijing should avoid spending too much on projects that might support growth.

Despite the stimulus and other support measures, China's economy is expected by economists and the government to keep slowing. Each tick down pulls the growth rate to levels not seen in nearly 30 years, when China's Tiananmen Square crackdown sent investors fleeing and sparked a two-year slump. Beijing has set a minimum growth target this year of 6% for its $13.4 trillion GDP. At that rate, the world's No. 2 economy would essentially add the annual output of Switzerland.

dj/ks

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